• Overview. MISC 3Q20 core profit declined 15% yoy to RM287m due to weaker performance across all segments except MMHE. Revenue declined by 4% yoy to RM2.1bn. On qoq basis, earnings declined by 54% (2Q20: RM630m) due to higher LNG drydocking activities and normalisation of Petroleum tanker charter rate (refer Chart 1-3) which was inflated in 2Q20 due to rising demand for floating storage.

• Key highlights. In petroleum segment, AET took delivery of 2 DPSTs – Eagle Paulinia and Eagle Paraiso – which are chartered to Petrobras while disposed VLCC Bunga Kasturi 2. This increased the number of its operated vessels to 70 (2Q220: 69). Current portfolio mix between term to spot stands at 65:35.

• Against estimates: Inline. 9M20 core profit rose by 34% yoy to RM1.7bn mainly due to exceptionally strong tanker rate in 1H20. This is largely within our and consensus’ estimate at 71% and 80% respectively.

• Dividend. A 3 rd interim DPS of 7 sen was declared which is similar to 3Q19 DPS. This brings YTD DPS to 21 sen (9M19: 21 sen)

• Outlook. We keep our earnings projection unchanged with expectation of earnings CAGR of 18% over FY19-22F driven by new income from additional 19 new petroleum tankers and LNG vessels and construction gains from FPSO Mero 3 project to Petrobras

• Our call. Reiterate our BUY call on MISC with unchanged SOPderived TP of RM8.40. Our TP include FPSO Mero 3 project worth c.RM0.65/share, according to our estimate. We favour MISC due to (i) proxy for growth in frontier oil and gas development projects, (ii) recurring income from its asset-leasing business model, (iii) a midstream company with potential benefit from oil price crisis, and (iii) above-market dividend yield.

Source: BIMB Securities Research - 18 Nov 2020